HOW TRADE EXPANDS THE SET OF CONSUMPTION OPPORTUNITIES
OPPORTUNITY COST OF MEAT AND POTATOES
The rancher has an absolute advantage both in producing meat and in producing potatoes
because she requires less time than the farmer to produce a unit of either.

Number of buyers: market demand depends on the number of buyers, if the number of
buyers increases, the market demand increases
-$1.00- Katherine: 12, Nicholas: 7, Market demand: 19
-If you add Zachary, $1.00: 9, there is an increase in market demand, Mar

CIRCULAR FLOW DIAGRAM
In the circular-flow diagram, the economy is simplified to include only two types of
decision makers- firms and households. Firms produce goods and services using inputs
such as labor, land and capital- these inputs are called the fa

Econ- Chapter 3: Interdependence and the Gains from Trade
-If rancher produces only meat and farmer produces only potatoes then: both gain from
trade
-Comparative advantage: the ability to produce a good at a lower opportunity cost than
another producer,

Econ- Chapter 1: The Ten Principles of Economics
-Economy (greek): oikinomos, one who manages a household
-Economics: the study of how society manages its scarce resources
-Scarcity: the limited nature of societys resources
How People Make Decisions (P 1-

Econ- Chapter 4 and 5
Market: a group of buys and sellers of a good/service, buyers: determine demand, sellers:
determine supply
-Competitive Market: market in which there are many buyers and sellers, no single buyer can
influenced price because each buy

Econ- Chapter 2: Thinking Like an Economist
-Economists as scientists: they devise theories, collect data, analyze data
-Scientific method: develop and testing of theories
-Assumptions: a way to simplify the complex world
-Circular flow diagram: shows how